Director Kappos on the USPTO’s (lack of) Funding

In a recent e-mail to PTO employees, Director Kappos explained a real problem associated with PTO funding for the next year — that 1.9 billion dollars will not be enough for FY2010. Although that seems like a lot of money, the PTO’s technology infrastructure is in dire need of an overhaul and the agency needs to hire additional examiners to reduce the current backlog of over one million pending applications. It appears likely that the PTO will collect over two billion dollars in user fees for FY2010, but the current funding rules would force the agency remit any amount over $1.887 billion to the US Treasury.

To recap, the PTO is (1) entirely funded by by user fees and (2) has significant financial needs to address shortfalls in serving its users. In this situation, the agency should at least be authorized to spend the fees that it collects.

== Kappos Letter ==

Dear Team:

I wanted to share my thoughts with you about a topic of great import to the USPTO and its mission. As you’ve read in the press, we have been engaged in ongoing discussions with members of Congress and their staff regarding our budget for the current fiscal year, which began on October 1, 2009. In addition, we have been providing technical assistance to Congress in connection with patent reform legislation, which is geared toward placing the USPTO on a sustainable funding model.

Innovation is the engine of our economy, and an efficient USPTO facilitates the timely delivery of innovative goods and services to market. What we do here at the USPTO is therefore of paramount importance to economic recovery and job creation.

As you know, the USPTO has been struggling in the last year to put itself on solid financial footing. Declines in fee revenue during the recession have adversely impacted our budget – and as a consequence forced us to make hard choices – including halting virtually all hiring, limiting overtime, and postponing critical repairs to our information technology infrastructure.

As part of the annual appropriations process, our financial team was asked to provide Congress with projected fee income for the 2010 fiscal year. This information was provided in September based on the data available at that time, when agency collections were at their low point. Congress used that projection of $1.887 billion in setting our budget for the 2010 fiscal year. That budget forces us to maintain operations on a bare-bones basis, but provides insufficient resources for us to replace employees who leave the agency, improve infrastructure or continue some of the improvements we have started to implement.

In addition, in the last two years, Congress had provided the USPTO a buffer of $100 million above our appropriation, which we were authorized to retain and spend to the extent fee income exceeded our appropriation (up to the $100 million buffer amount). That provision was removed from our fiscal year 2010 appropriation, due (we have been advised) to changes in Congressional Budget Office accounting which made it more difficult for our appropriators to provide the $100 million buffer this year.

The good news is that fee collections have begun to increase, and our current FY10 projections are more than $100 million above the $1.887 billion appropriations amount. We are actively working with Congress and the Administration to find ways to retain funds in excess of the $1.887 billion spending cap so that we can begin to backfill departing employees, improve our infrastructure, and continue to implement reforms.

But let me be clear about this: Hiring large numbers of people is not the silver-bullet solution to our problems, and we intend to hire conservatively and smartly. Most of you are aware that we have launched many reforms since I came on board last August, and we are now aggressively implementing them and looking for new ways to be more efficient on a constant basis. However, there is simply no way to get the backlog under control in a reasonable period of time without significant hiring given current attrition rates. You can run the numbers yourselves using the Patent Pendency Model and I would encourage you to do that.

Our infrastructure needs are also dire – so dire that President Obama referenced the USPTO’s antiquated IT systems in his remarks last week on modernizing government. We must improve those systems to become an efficient 21st century agency – and to be able to effectively serve the innovation community and the American economy.

It is therefore imperative that we work with Congress to develop long-term financial solutions that will establish a sustainable budget for USPTO over multiple years. Providing the USPTO with fee-setting authority as included in the pending patent reform legislation would be part of that plan. But, for the current year, we have immediate and urgent funding needs that require short-term assistance.

For your reference, I’ve attached a copy of the letter I sent to the relevant Congressional committee members on January 4, 2010.

Addressing our financial challenges so that the Agency can function effectively is my highest priority. I remain dedicated to working with our stakeholders, the Department of Commerce and members of Congress to ensure that we are able to perform our mission properly in the short-term – and to develop and adopt a sustainable funding model that will allow us to serve this country’s innovators in the future.

I want to thank you for your hard work and dedication during this challenging period for the agency. I very much look forward to hearing any thoughts you might have on this matter. Please share any comments via the Director’s Blog. I will be sure to keep you posted on any significant new developments with respect to our budget.

32 thoughts on “Director Kappos on the USPTO’s (lack of) Funding”

PTO has been on the news that “PTO has a lot to do: more applications and huge backlog for less funding”! is discouraging but there are opportunities to avoid being a “cried baby” in front of congress for additional funding. One of the opportunities is “adding ~$200 million to PTO revenue per year while reducing backlog in less than two years without additional hiring and without increasing filing fee”. This sounds too good to be true but it is possible if PTO can think out of the box. PTO is only one which has never had a competitor so it has never had a sense of competitiveness and lack of innovation! It is time to make changes.

If we did away with the patent system how would this benefit the small time inventor? Have you not learned from history? I can tell you that history tells me the small time inventor would be ripped off without any legal recourse if he did not have a patent proving he owned the rights to an invention. If you sold your invention on the public market without a patent protection I can garauntee you that it would be reverse engineered and copied. Well if it’s worth taking the time to do so.

Now the office is not perfect but screaming for it’s destruction like a barbarian horde at the gates of Rome is hardly a solution. I too am confused by your anger at having to license the rights to your invention, can’t you make money like that? Then you would have the start up capital to create your own business. A lot of very big firms were created by patents and their potential money generation.

Congress has previously diverted ~$752M from the USPTO. This amount is roughly equal to the applicant fees paid for the queued applications waiting for examination. Basically, Congress stole and spent the fees paid for queued applications on other stuff. As the queue grows, Congress diverts even more.

Congress should immediately replace the ~$752M (plus interest) and establish an escrow model for queued applications. Establish flexible funding at the USPTO, so that as the backlog/queue is reduced, the corresponding escrowed fees (additional funds) become available for the patent office to use.

The escrow (the work backlog) acts as a rate smoothing buffer so that patent office funding is insulated from short term variations in new application filings and the queue can be reduced as quickly as possible.

Immediately fix the USPTO funding model without waiting for resolution of any patent reform legislation. This should help in the short term … may need some tweaking.

The fed gov can throw 100’s of billions of dollars at this, that, and the other thing … but treats one the few, if only, fed agency/dept that actually (if left alone) supports itself like a junk-yard dog.

“I work a lot of fixed fee stuff. It’s relatively low. I have friends in other fields. They’re able to capture a LOT more of their billable time. And then there’s contingency…”

I’ve got friends who make more money than I do as well, but that doesn’t tell us very much. If you meant to say that the high-end incomes in patent prosecution aren’t as high as the high-end incomes in many other legal disciplines, then I agree completely. But I dare say that the average patent prosecutor does much better than the average criminal defense attorney, the average tort lawyer, the average divorce attorney, etc. After I received a traffic ticket last year, I was inundated by solicitations from dozens of lawyers – I bet many of those guys would trade incomes with you.

Exactly. I cannot even comprehend the amount of trouble the patent system would end up causing me if I were to try to make a startup. The amount is so high it seems like we may as well call it infinite.

And that’s assuming I went ahead and patented a few key (and revolutionary to the point of “must adopt”) technologies BEFORE I made the business.

fatalist, I get it now. Try Venezuala or North Korea. You may find their private property rights system and bleeding edge innovation more to your liking.

Why did you get a patent? Did you pay for it, or some company you work for? Did you just get beat in the marketplace by a BETTER invention? It’s plain to all that your position is entirely sour grapes.

And on a per hour basis, patent procurement is one of the lowest paying disciplines in the law (and probably in most businesses as well). There’s not a lot of pocket lining going on here. If your’e convinced that there is money flowing like rain from the heavens, then perhaps you should get into this business.

“fatalist, so you’re not involved in the patent system in any capacity? How did you end up here?”

Actually I am

I have this piece of paper called US patent 7,xxx,xxx on my wall (it’s been relegated to a dusty closet some time ago) with the signature of some dude named dudas saying in writing that I have some exclusive rights in my invention, whatever it means…

What I don’t understand is why we have those things called patents in the first place ?

You need to put your twisted view of what the job of the Office is aside and take Pine’s comment on its intended position.

Obfuscating the issue with your patents-are-evil and businesses-that-want-patents-are-evil taint does not advance the discussion – and we all want to advance the discussion with our critical faculties engaged, don’t we?

That would mean rejecting all those zillions of BS patent applications from the likes of IBM on methods of managing patent portfolios or making toilet reservations on a plane, and giving proper and timely examination to a few worthy applications coming from startups and independent inventors

The USPTOs problems stem from Congress raiding it’s coffers and it’s relatively lack of political pull with Congress. The USPTOs clients – the corporations of the world – have that political pull. By standing on the side lines, corporate In-House patent councils are hurting their companies intellectual property pursuits. They need to bring the USPTOs funding issue up at their next corporate board meeting and urge their corporation to contact Congress and ask Congress to stop raiding the USPTO’s coffers – give the USPTO enough money to do its job.

Jeff said “John Schmid of the Milwaukee Journal Sentinel has done some great investigative reporting on the challenges the USPTO faces. He recently published the story about Congress stripping $100 million from their budget: “Congress deals funding blow to Patent Office.”

John Schmid of the Milwaukee Journal Sentinel has done some great investigative reporting on the challenges the USPTO faces. He recently published the story about Congress stripping $100 million from their budget: “Congress deals funding blow to Patent Office.”

Think what could happen if a few billion from all the stimulus waste were directed to actually revitalize a key part of our economic engine, the US patent system? I’d much rather see the USPTO overspend than see record backlogs and inadequate resources for this vital office. But now one can argue that we are further taxing innovation rather than helping it along wit this new budget twist.

Sounds great. Except for the “set our own fees” part. Just no. While Kappos seems like a fellow who gets it and would be responsible, who knows about his successor. Of course, it’s being left in Congress’ hands now, so really, could it get much worse?